Last week I joined forces with MPs Peter Kyle (Labour, Hove & Portslade) and Caroline Lucas (Green, Brighton Pavilion). We were meeting David Gauke, the Financial Secretary to the Treasury, to make the case for micro-businesses about the government’s plans to increase dividend taxes and review IR35 rules.
Mr Gauke and his officials are responsible for steering the Finance Bill 2016 through Parliament, which will include the changes to dividend taxes. Peter, Caroline and I explained to Mr Gauke our concerns over the transition from the old to the new dividend tax regime. Our analysis shows this will particularly hit lower earning micro-business company directors hardest.
There was a clear understanding of the issues at hand, and that some of the mitigating allowances offered thus far aren’t applicable to most micro-businesses (e.g. Annual Investment Allowance and Employment Allowance). In the meeting we explored a number of options including deferring the entire changes until the Corporation Tax rate is cut in 2017, providing a one-off transitional credit for those directors earning under £50,000, or possibly changing the ratio of the tax bands.
This latter suggestion would look at changing the current proposals so that higher earners would see a bigger tax rise than lower earners. For example, Government could increase the lower band’s rate by just 5.5% and the highest band by 9.5% to shift the ‘progressiveness’ of the measure. Currently everyone, no matter how much their income, will see their rate go up by 7.5%. One final area worth exploring, but clearly costly to the Government, would be to increase the new £5,000 tax-free dividend allowance to a higher value, perhaps £7,500.
While there was no agreement on a specific way forward, we welcomed the commitment to look at the options and recognition that some of the communications so far hadn’t acknowledged micro-businesses as a specific area of concern. We also were able to explore our concerns around the chilling effect further IR35 restrictions could have on freelancers and contractors.
Finally we had a productive and supportive conversation around the ‘Making Tax Digital’ strategy. We’re excited to support government’s ambition on this strategy and will be an early test site for some of the technology HMRC will be using.
This, along with our many other meetings with MPs and officials, was another step in our work towards making the voices of micro-businesses heard in the halls of power. Our views on dividend taxes were also raised by the recent House of Lords Finance Bill Subcommittee, whose report also flagged concern about the lack of communication from HMRC to the public about the planned changes.
If you’re a company director for a micro-business there is still time to make your MP aware of what the dividend tax changes mean for you and to ask for their support.
Use the free service WriteToThem.com to enter your postcode and write to your local MP. These are some points we suggest you make in your message, but do make it your own:
- You are a director of one of the 3.4 million companies incorporated on the Companies House Register. Like you, most of these are micro-business of 9 or fewer employees.
- The planned changes to dividend taxes due in the Finance Bill 2016 will hit lower earning directors particularly hard. You believe this is an unfair burden.
- You would like them to raise these concerns with ministers and to seek amendments to the Bill to mitigate against these transitional impacts on smaller businesses like your own which are more vulnerable to sudden rises in tax.